The Pros and Cons of Inviting Venture Capitalists Into Your Startup

As an entrepreneur trying to set up a new business startup, a point is likely to come where you will have to make a decision on whether or not to invite venture capitalists into the startup. This is likely to be at the point where you realize that you simply don’t have enough money to finance the startup’s further growth. At that point, you have to start thinking about inviting investors with deeper pockets: among them the venture capitalists. When you get to this point, you need to understand that there are pros and cons to inviting venture capitalists into your startup. You therefore need to objectively assess the pros against the cons, in order to make the right decision on whether or not to invite the venture capitalists into the startup.

Starting with the pros, you will see that the venture capitalists do indeed have the capacity to give you all the money you need to grow the startup to the next level. This is money that you’d struggle a great deal for, if you were to attempt to raise it through the other methods — say, by bootstrapping or borrowing from banks. Furthermore, the venture capitalists usually go beyond just providing money: and they also provide you with the expertise you need to turn the startup into a successful business enterprise. Further still, the fact that you are able to attract venture capitalists to invest in your business is likely to be viewed by other stakeholders as a sign that your business is going in the right direction: which is likely to lead to even more success.

Turning to the cons, you will see that when you invite venture capitalists into your business, you will have to be willing to cede some control (over the business) to them. A point is actually likely to come where you find yourself being controlled by the venture capitalists who have invested in your business: to the point where you are in essence nothing more than some sort of an employee to them. Furthermore, you have to understand that the venture capitalists (who are sometimes referred to as ‘vulture capitalists’) tend to take very huge stakes in startups, in exchange for relatively small investments.

When all is said and done, there is give and take, when it comes to inviting venture capitalists into your startup. It is upon you to carry out an objective cost-benefit analysis, in order to make the decision on whether or not to invite the venture capitalists.